The rise of social media and the digital economy have put CEOs under pressure of higher risks today.
In the past, CEOs found it far easier to absolve themselves from the concerns of the political class. They were largely shielded from political upheavals and public accountability by the state apparatus and business environment.
But the recent examples of Lehman Brothers, Carlos Ghosn, and even Lee Jae-yong, “The Crown Prince of Samsung”, show that CEOs are not as invincible as they used to be.
With globalization meaning companies are working across borders and the rise of social media, CEOs of large corporations operating in the public domain are exposing their companies and their reputation to more risks and scrutiny.
Past protection measures
It was previously common for CEOs to shield themselves by investing in political risk insurance. Many insurers (public and private) offer such products, providing protection against eventualities such as exchange transfer, political violence or embargoes. In this way, CEOs transfer responsibility to an external agent and buy themselves peace of mind.
This often drove the belief that they were ‘too big to fail’. But with recent events like the coronavirus impacting businesses, it begs the question: Do such insurance providers provide any real protection anymore?
For example, if supply chains are being disrupted in China because of COVID-19, can it be determined as force majeure by law (an unforeseeable circumstance that prevent someone from fulfilling a contract) and be eligible for compensation?
Likewise, if an oil pipeline is attacked in Saudi Arabia and no perpetrator is clearly identified, can that be qualified as a terrorist attack which can then be covered by the insurance? You can be very sure that, in the case of any uncertainty, insurance companies will be reluctant to reimburse losses incurred.
At the same time, CEOs of colossal entities often believe that the sheer size and influence of their organizations shields them from political risk. Their relationships with the highest levels of government, turnovers the size of a small economy, and their army of employees surely act as a driver of political pressure.
However, the use and influence of this external line of defense is being used less as it doesn’t work as much anymore, and CEOs now have to develop more intrinsic internal measures to weather the consequences of political winds.
New rules of the game
As external pressures are unpredictable, businesses need to ensure they have the right internal measures in place to protect their CEO and the company’s reputation.
One of these internal measures is the hiring lobbyists who can defend the company and the CEO from nefarious political forces. This is a legitimate business and many large multinationals have a stable of former politicians-turned-lobbyists who are happy to do battle on the company’s behalf in exchange for proper emoluments.
For example, media have portrayed Tony Blair as ‘the former PM for hire’ (The Guardian, 28 April 2016), which is symptomatic of a general belief among some CEOs that political leaders can provide a rear-guard action defense.
Another internal measure businesses should consider is the influence and even control of the media. CEOs who sit within an oligarchy are afforded a blurring of the public and private interest. In an authoritarian regime, very few media organizations will go up against them. In many cases, the very same oligarchs own the media outlets.
It is instructive to note that Jeff Bezos’ Washington Post editorial board argued that the proposal of a wealth tax isn’t “optimal means of raising taxes on those who can afford to pay more”, (Washington Post, 1 July 2019).
The third, and arguably most important, area to look at is social media. Social media is notoriously difficult to control and CEOs and the companies they lead are regularly subjected to unrestrained vitriol on numerous social networks.
In this day and age, the right social media conduct is critical.
It was somewhat ironic that the founder of the most powerful social network in history, Mark Zuckerberg, had no defences to hide behind when summoned to face the US Congress in the data sharing enquiry in 2018. Perhaps he didn’t care too much about the glare of public opinion, but when netizen voters put pressure on their representatives, the Congressmen and Congresswomen will turn the screws on the CEOs.
There are more clandestine approaches to defending the corporation and its leadership from acts of political vandalism. The militaristic sounding role of ‘Chief Intelligence Officer’has emerged in recent decades. Indeed, some companies have paid large penalties levied for illegal intelligence gathering or political espionage.
In the past, legal injunctions and cover-ups might have done the trick, but these days a whiff of impropriety or kompromat will proliferate into a lingering stench on the internet. Some dirt sticks forever.
Modern CEOs cannot preserve themselves from political influence by shifting responsibility and accountability externally and internally. The nature of political activity has changed utterly with the advent of social media.
Today, there are few if any lines of defense and CEOs find themselves directly in the firing line. Those who understand their position can adapt to change by being open, transparent and socially responsible.
Those who don’t, put not only their company but their own future and legacy in jeopardy.